Decentralized Finance (DeFi) is a passive income and fixed income program from crypto. One of the most popular DeFi programs and what is DeFi lending.
Let’s have a complete gnat book about DeFi lending in this article.
What is DeFi Lending?
DeFi Lending is one of the fastest growing parts of the cryptocurrency ecosystem. They allow crypto holders to lend their assets to others and earn interest.
One of the great promises of blockchain and cryptocurrencies is to take the tools used by the financial industry and create for everyone everywhere. This general term for this revolution in the way money is made, spent, and sent is called DeFi, or decentralized finance.
Like traditional banks, crypto assets offer all the same products but in a decentralized form. This includes credit, credit, spot trading, and margin trading.
Through DeFi lending, individuals can quickly and easily get credit without having to reveal their identity to third parties or through checks made by traditional banks. But there are drawbacks.
Below we explore how DeFi lending works, what are its advantages over traditional forms of finance, and what the future holds for this emerging technology.
What is DeFi?
DeFi is basically an umbrella term for taking an existing financial product like credit and moving it to the blockchain. The idea is to use existing cryptocurrencies to provide financial services using smart contracts.
DeFi Pulse at a glance lets you see the amount of money currently unlocked in this project. At the time of writing, there is more than $9 billion – from more than $1 billion at the start of 2020 – currently locked in these projects.
How does DeFi Lending work?
Crypto assets that are in the wallet do not earn interest. Value which however may increase or decrease, you earn nothing for holding certain cryptocurrencies. This is where DeFi lending comes in.
I can lend your crypto to other people and earn credit interest. This is how banks work today, but it is a service that only a select few can access. In the world of DeFi, anyone can be a creditor.
By lending your crypto assets to others, you can earn interest on those assets. There are but various ways to do this, the main way is through credit pools. This is basically traditional bank credit.
What’s so special?
DeFi offers the same products as brick and mortar financial institutions (lending, lending, trading, investing, etc.), but uses blockchain to perform with additional benefits:
- Anonymous and decentralized DeFi
- You can earn interest by lending your crypto assets to others.
- The most common way to generate interest in crypto assets is through loan pools.
- Borrowers usually have to over collateralize the loan to protect against a sudden drop in collateral value, which will result in a penalty making it a safer choice for lenders.
How does DeFi lending work?
When they want to take credit, they must offer something more valuable than the amount of credit. That means they need to deposit through the contract a decent amount of money equal to the amount they want to take out. Guarantees can be in multiple currencies however. So, if you want to borrow one bitcoin, you need to deposit the current price for one bitcoin in DAI, for example. Or 11.296 DAYS.
A few months later, you are done with the credit and need to pay back your bitcoins +10 percent and then you receive back your 11,296 DAI. Borrowers are happy that they receive back their original DAI without having to sell it and pools are happy that they can now distribute 10 percent in bitcoins to the pool of investors.
DeFi lending is a DeFi program that is being loved. You can join the DeFi program from Coinomo. You can download coinomo now…